1 INTRODUCING STRATEGY Learning outcomes After reading this chapter you should be able to: ● Explain what ‘strategy’ is about. ● Summarise the strategy of an organisation in a ‘strategy statement ’. ● Identify key issues for an organisation’s strategy according to the Exploring Strategy model. ● Distinguish between corporate , business and operational strategies. Key terms Business-level strategy p. 6 Corporate-level strategy p. 6 Exploring Strategy Model p. 9 Managing strategy in action p. 13 MyStrategyLab is designed to help you make the most of your studies. Operational strategies p. 7 Visit www.mystrategylab.com to discover a wide range of resources specific to this chapter, including: Strategic choices p. 12 • A personalised Study plan that will help you understand core concepts. Strategic position p. 11 • Audio and video clips that put the spotlight on strategy in the real world. Strategy p. 2 • Online glossaries and flashcards that provide helpful reminders when Strategy statements p. 7 you’re looking for some quick revision. Three horizons framework p . 3 See p. xiv for further details. M01_JOHN7252_02_SE_C01.indd 1 10/11/11 9:04 AM 2 CHAPTER 1 INTRODUCING STRATEGY 1.1 INTRODUCTION trategy is about key issues for the long-term future of organisations. For example, how S should Google – originally a search company – manage its expansion into the mobile phone industry? Should universities concentrate their resources on research excellence or teaching quality or try to combine both? How should a small video games producer relate to dominant console providers such as Nintendo and Sony? What should a rock band do to secure revenues in the face of declining CD sales? All these are strategy questions. Naturally, they concern entrepreneurs and senior managers at the top of their organisations. But these questions matter more widely. Middle managers also have to understand the strategic direction of their organisations, both to know how to get top management support for their initiatives and to explain their organisation’s strategy to the people they are responsible for. Anybody looking for a management-track job needs to be ready to discuss strategy with their potential employer. Indeed, anybody taking a job should fi rst be confi dent that their new employer’s strategy is actually viable. There are even specialist career opportunities in strategy, for example as a strategy consultant or as an in-house strategic planner, often key roles for fast-track young managers. This book takes a broad approach to strategy, looking at both the economics of strategy and the people side of managing strategy in practice. The book is also relevant to any kind of organisation responsible for its own direction into the future. Thus the book refers to large private-sector multinationals and small entrepreneurial start-ups; to public-sector organisations such as schools and hospitals; and to not-for-profi ts such as charities or sports clubs. Strategy matters to almost all organisations, and to everybody working in them. 1 1.2 WHAT IS STRATEGY? ystrategyla .m b. In this book, strategy is the long-term direction of an organisation . Thus the long-term direction w co w m w KEY of Nokia is from mobile phones to mobile computing. The long-term direction of Disney is from CONCEPT cartoons to diversifi ed entertainment. This section examines the practical implication of this defi nition of strategy; distinguishes between different levels of strategy; and explains how to Strategy summarise an organisation’s strategy in a ‘strategy statement’. 1.2.1 Defining strategy Defi ning strategy as the long-term direction of an organisation implies a more comprehensive view than some infl uential defi nitions. Figure 1.1 shows the strategy defi nitions of three leading strategy theorists: Alfred Chandler and Michael Porter, both from the Harvard Business School, and Henry Mintzberg, from McGill University, Canada. Each points to important but distinct elements of strategy. Chandler emphasises a logical fl ow from the determination of goals and objectives to the allocation of resources. Porter focuses on deliberate choices, difference and competition. On the other hand, Mintzberg uses the word ‘pattern’ to allow for the fact that strategies do not always follow a deliberately chosen and logical plan, but can emerge in more M01_JOHN7252_02_SE_C01.indd 2 10/11/11 9:04 AM WHAT IS STRATEGY? 3 Figure 1.1 Definitions of strategy Sources : A.D. Chandler, Strategy and Structure: Chapters in the History of American Enterprise , MIT Press, 1963, p. 13; M.E. Porter, ‘What is strategy?’, Harvard Business Review , 1966, November–December, p. 60; H. Mintzberg, Tracking Strategy: Toward a General Theory , Oxford University Press, 2007, p. 3. ad hoc ways. Sometimes strategies refl ect a series of incremental decisions that only cohere into a recognisable pattern – or ‘strategy’ – after some time. All of these strategy defi nitions incorporate important elements of strategy. However, this book’s defi nition of strategy as ‘the long-term direction of an organisation’ has two advantages. First, the long-term direction of an organisation can include both deliberate, logical strategy and more incremental, emergent patterns of strategy. Second, long-term direction can include both strategies that emphasise difference and competition, and strategies that recognise the roles of cooperation and even imitation. The three elements of this strategy defi nition – the long term, direction and organisation – can each be explored further. The strategy of News Corporation, * owner of social networking company MySpace, illustrates important points (see Illustration 1.1 ): ● The long term . Strategies are typically measured over years, for some organisations a decade or more. The importance of a long-term perspective on strategy is emphasised by the ‘three horizons’ framework in Figure 1.2 . The three horizons framework suggests that every organisation should think of itself as comprising three types of business or activity, defi ned by their ‘horizons’ in terms of years . Horizon 1 businesses are basically the current core activities. In the case of News Corporation, Horizon 1 businesses include the original print newspapers. Horizon 1 businesses need defending and extending, but the expectation is * The enquiries into News Corporation’s involvement in telephone ‘hacking’ and its associated govern- ance implications were just under way as this edition of the book was going to press. M01_JOHN7252_02_SE_C01.indd 3 10/11/11 9:04 AM 4 CHAPTER 1 INTRODUCING STRATEGY ILLUSTRATION 1.1 MySpace becomes part of a bigger network Social networking site MySpace presents opportunities and challenges for the global media conglomerate News Corporation. The social networking site MySpace was founded in paid for the original acquisition with money left over. California in 2003 by MBA graduate Chris DeWolfe and Executives summed up MySpace’s distinctive positioning rock musician Tom Anderson. From the first, the net- by saying: ‘Your mom uses Facebook’. working site was strong on music, and helped launch But business then got tougher. Facebook overtook the careers of the Arctic Monkeys and Lily Allen. By MySpace in terms of unique visitors in 2008. News 2005, it had 22 million members, with more page views Corporation executives complained about the excessive than Google. That was the point when the multinational new initiatives at MySpace and the failure to prioritise: media conglomerate News Corporation bought it for DeWolfe and Anderson were even considering launching $580m (A406m). their own film studio. Then Rupert Murdoch announced News Corporation started in Australia in the news- a target of $1bn in advertising revenues for 2008, paper business, acquiring the Times newspaper group without consulting DeWolfe. MySpace missed the target in the United Kingdom and the Wall Street Journal in by about 10 per cent. The push from News Corporation the United States. It also diversified into television to increase advertisements on MySpace, and a reluct- (for example Fox News and BSkyB) and film, including ance to remove pages with advertising from the site, 20th Century Fox, responsible for the hit film Avatar . Its began to make MySpace increasingly less attractive chairman is Rupert Murdoch, whose family owns a con- for users. trolling interest: Rupert Murdoch’s son James is expected During 2009, MySpace’s share of the social network- to succeed him at the top. ing market fell to 30 per cent, from a peak of 66 per cent. In 2005, with media audiences increasingly moving The company missed the online traffic targets set by the to the internet, Rupert Murdoch declared his ambition Google contract. Losses were expected to be around to create ‘a leading and profitable internet presence’. $100m. In March, Chris DeWolfe was removed as Chief The acquisition of MySpace seemed a good fit. Chris Executive of MySpace. The new Chief Executive was Alan DeWolfe and Tom Anderson were retained at the head Van Natta, from Facebook. Van Natta told the Financial of MySpace, but within a new division providing over- Times that MySpace was no longer competing with sight for all News Corporation’s internet interests. Ross Facebook: ‘we’re very focused on a different space . Levinsohn, long-time News Corporation insider and head MySpace can foster discovery [of music, films and TV] in of the new division, told the Financial Times : ‘The MySpace a way that others can’t’. guys were really freaked out that we were going to come Sources : M. Garnham, ‘The rise and fall of MySpace’, Financial Times , in and turn it into Fox News. One of the things we said 4 December 2009; P. Sellers, ‘MySpace Cowboys’, Fortune , 29 August was: “We’re going to leave it alone”’. 2006; S. Rosenbusch, ‘News Corp’s Place in MySpace’, Business Week , 19 July 2005. Some adjustments had to be made. Tom Anderson told Fortune magazine: ‘Before, I could do whatever I wanted. Now it takes more time to get people to agree on things.